Linde | Strategy and Financial Highlights Information from ICIS

Edited from: “Letter to shareholders”, annual report, “Linde half-year financial report” and company website

Linde states that its strategy is geared towards sustainable earnings-based growth and focuses on the expansion of its international business with forward-looking products and services.

“Due to our global presence, our relatively stable business model and our extensive efficiency improvement measures, we will continue to seek to limit as far as possible the decline in group earnings. We will accelerate and escalate the implementation of our high performance organisation programme,” says chief executive officer, Wolfgang Reitzle.

“Due to this fact, we continue to expect that steady improvements in our productivity will lead to a total reduction in gross costs of between €650m and €800m in the financial years 2009 to 2012,” continues Reitzle.

Outlook

Linde states that the months following the first half of 2009 will continue to feel the impact of the global economic crisis. Even if in some industry sectors the first signs are appearing of a slight recovery or stabilisation at a low level, the leading economic research institutes are continuing to expect a significant decline in global economic output for the year 2009.

Against this background and on the basis of the business figures in the first six months of the year, the company assumes that it will not be possible to achieve the same level of sales and earnings in the 2009 financial year as in the “record year” 2008.

However, provided that the economic recovery stabilises, it expects a better business development in the second half of 2009 than in the first six months.

The gases business was unable to avoid the pressure caused by the economic situation completely. However, it believes its broad customer structure and its international presence are particularly beneficial in this “difficult market” environment.

“The continuing uncertainty in the market environment has therefore not caused us to change in any way our original target for the gases business. We want to grow at a more rapid pace than the market and to continue to increase our productivity,” says Reitzle.

In the on-site business, Linde assumes that over the whole year there will be lower capacity utilisation of plants. At the same time, it will still be able to fall back on a full project pipeline, which has already contributed significantly to sales and earnings in 2009 and will do so to an even greater extent from the 2010 financial year.

Moreover, the supply contracts in its on-site business are long-term contracts and are designed to limit the negative effects of any volume reductions. Its liquefied gases and cylinder gas business will be able to benefit from a potential economic upturn.

In the Healthcare segment, it is expecting further growth in its medical gases business even in the current financial year.

Against this background and given current economic trends towards recovery, it is expecting a better business performance in the Gases division in the second half of 2009 than in the first six months of the year.

Linde states that this positive trend will, however, not be sufficient to ensure that sales and earnings for the full year 2009 will reach the levels achieved in 2008.

The order backlog for its Engineering division remains at a very high level at more than €4bn, underpinned by the major contract from Abu Dhabi received at the end of June 2009, providing a good basis for a relatively stable business performance in the coming 18 to 24 months.

However, the effects of the economic crisis are being felt in global large-scale plant construction as well. This may result, for example, in the award of new projects being postponed.

“We therefore assume that new orders in our Engineering division will not be sufficient to achieve the same level of sales revenue in the 2009 financial year as in 2008. Nevertheless, the target for our operating margin remains at 8%,” says Reitzle.

International large-scale plant construction will benefit from upcoming investment in new sustainable energy infrastructures irrespective of economic imponderables. With its international orientation and high reputation in the four operating segments (olefin plants, natural gas plants, air separation plants, hydrogen and synthesis gas plants), Linde says it is in a “promising position in terms of these structural growth markets”.

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Financial highlights: Linde, year ended 31 December

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Linde Company Structure

Linde is an industrial gas and engineering company. Founded in 1879 as a supplier of refrigeration machines, it first started manufacturing oxygen in 1902 and became the world's fourth largest gas supplier when it acquired Sweden's AGA in 2000. In 2004, Linde's refrigeration business was spun off and later sold to Carrier Corp. On 4 September 2006, Linde acquired BOC. The £16/share agreed offer, which valued BOC at around £8.2bn, took effect from 5 September 2006.Following the merger of Linde and BOC the company now trades under the name "The Linde Group". The name change applies to the group only. On the operating level, the Linde and BOC brands will remain unchanged.
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